xecutive summaryx ray

xecutive Summary

Scan Lab Medical Imaging is a start-up company offering a wide range of medical image scanning tests for the New Bedford, Massachusetts community.

The MarketScan Lab will target insurance carriers. Insurance carriers use a bid submittal process to set up contracts with the various medical scan service providers. In today’s medical environment these contact are key because 99% of the scans done are billed through insurance. Insurance companies therefore are the gate keepers to this process. Scan Lab recognizes the importance of getting insurance carriers approval and will work hard to get approved by all popular insurance plans.

Once Scan Lab has been approved by an insurance company, it will rely on referrals of physicians to point their patients to Scan Lab. Doctors make referrals based on several factors including geographic location/convenience who they know, accepted forms of insurance, type of scan, etc. It will be important to have a strong marketing and sales campaign that alerts referring doctors to Scan Lab’s services.

ServicesScan Lab offers a wide range of radiology-based medical scanning tests. Scan Lab has the latest equipment and the expert medical training to interpret and provide valuable consultations to the physicians who make the patient referrals to Scan Lab.

ManagementScan Lab will be lead by Dr. Carolyn Jones. Dr. Jones received her medical degree with a specialization in radiology from the University of California San Diego, a nationally recognized medical school for radiology. Dr. Jones performed her residency at John Hopkins, also nationally recognized for their radiology program. Dr. Jones has practiced radiology for 13 years at a large clinic in Boston.

1.1 Mission

It is Scan Lab’s mission to be recognized as the leader in medical scanning technology in New Bedford. This will be achieved by friendly service, flexible acceptance of insurance plans, and accurate analysis.

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1.2 Objectives

To capture 40% of local physicians’ business within two years. To reach profitability within two years. To double sales by year three.

1.3 Keys to Success

Only purchase medical equipment that has demand within the community. Provide fast, friendly service with accurate readings. Employ strict financial controls to help manage the expensive capital costs associated

with medical imaging equipment.

Company Summary

Scan Lab has been formed as a Massachusetts corporation. It is solely owned by Carolyn Jones.

2.1 Start-up Summary

Scan Lab will need to purchase the necessary equipment for the clinic.

Office furniture for four exam rooms. This equipment will be purchased used in good condition. This will be done as a cost saving measure.

Receptionist office furniture and assorted waiting room furniture (this will also be purchased in good, used condition).

Three computers, one with QuickBooks Pro, all with Microsoft Office, a central laser printer and broadband Internet connection.

Medical scanning devices:o X-ray machineo Ultra sound unito CAT scan imaging machineo MRI imaging machine

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Start-upRequirementsStart-up ExpensesLegal $3,000Stationery etc. $300Brochures $300Consultants $2,000Insurance $3,000Rent $2,000Total Start-up Expenses $10,600Start-up Assets

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Cash Required $317,900Other Current Assets $0Long-term Assets $861,500Total Assets $1,179,400Total Requirements $1,190,000

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Start-up FundingStart-up Expenses to Fund $10,600Start-up Assets to Fund $1,179,400Total Funding Required $1,190,000AssetsNon-cash Assets from Start-up $861,500Cash Requirements from Start-up $317,900Additional Cash Raised $0Cash Balance on Starting Date $317,900Total Assets $1,179,400Liabilities and CapitalLiabilitiesCurrent Borrowing $0Long-term Liabilities $860,000Accounts Payable (Outstanding Bills) $0Other Current Liabilities (interest-free) $0Total Liabilities $860,000CapitalPlanned InvestmentDr. Jones $180,000Investor $150,000Additional Investment Requirement $0Total Planned Investment $330,000Loss at Start-up (Start-up Expenses) ($10,600)Total Capital $319,400Total Capital and Liabilities $1,179,400Total Funding $1,190,000

2.2 Company Ownership

Carolyn Jones is the sole stockholder of the Scan Lab corporation.

Services

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Scan Lab offers New Bedford physicians a wide range of diagnostic scanning tests. Due to the high cost of scanning equipment for occasional use, most small clinics and practices use an outside service provider for scanning needs. The following scans will be offered:

o X-Ray: An X-ray uses invisible electromagnetic energy beams to produce images of internal tissues, bones, and organs on film. X-rays are used for numerous reasons but work best to find tumors or bone injuries.

o Ultrasound: This technology sends sound waves into the body, recording the reflection. Ultrasound is used for a detailed assessment of blood flow and for views of soft tissue and anatomical body structure.

o CAT Scan: This is a diagnostic technology that uses a combination of x-rays and computer technology to produce cross-sectional images (“slices”) in a horizontal and vertical orientation. A CAT scan can show detailed images of any part of the body including bones, muscles, fat, and organs. CAT scans are more detailed than traditional x-rays and have lower releases of radiation. CAT scans are often used to diagnose tumors, evaluate internal bleeding or investigate internal injuries or damage.

MRI: This technology harnesses magnetic energy. The patient is placed in a tube or on a bed where magnetic fields are applied to the body. The reaction by the body when the magnetic fields are applied and relaxed are noted by a computer which has been recording data throughout the process. MRIs are the premier scanning device for extremities, especially joints, as well as for imaging the upper spine and lower back.

Diagnostic scanning requires proper analysis by a radiologist to analyze the scans.

Market Analysis Summary

Scan Lab has identified two customer segments that they will target: medical insurance carriers and physicians. For many patients the insurance company mandates who can provide scanning services. Therefore, the driving force to getting customers is attracting the large insurance carriers. Scan Lab has been in negotiations with the three largest carriers in the state and all have informally accepted Scan Lab’s bid proposal.

The second customer group is the physicians. While the insurance company will mandate what labs are acceptable for their insurance plan, it is the doctor’s choice where they recommend their patients goes.

4.1 Market Segmentation

Scan Lab will target the three largest medical insurance carriers: Aetna, Cigna, and Prudential. Smaller ones will also be targeted later.

Scan Lab has been involved in negotiations with these three insurance carriers to develop an arrangement for Scan Lab to be an approved facility. The next step is the submission of a bid,

which is primarily based on price. The lab must agree to rates that the insurance companies have set forth. A secondary consideration is the ability of the lab to adhere to specific filing and billing procedures.

The second target market segment is physicians. Physicians make referrals based on numerous factors including:

Who they know. Who the patient’s insurance company is. What type of scan the patient is receiving. Convenience of location relative to their office or to the patient’s home.

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Market AnalysisYear 1 Year 2 Year 3 Year 4 Year 5

Potential Customers Growth CAGRInsurance companies 1% 21 21 21 21 21 0.00%Physicians 4% 235 244 254 264 275 4.01%Total 3.70% 256 265 275 285 296 3.70%



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4.2 Target Market Segment Strategy

The insurance companies decide what scanning facilities are acceptable relative to their insurance plan. Once the facility has been approved, the approval is typically good for one to two years at which point a new bid must be submitted.

Physicians direct the patient to where they must go for a scan. Because Scan Lab is located within a professional building with many doctors, this level of convenience with often prompt the doctor to immediately recommend Scan Lab.

4.3 Service Business Analysis

The medical imaging industry operates under two models: a large clinic or practice that purchases the equipment for the use of their physicians, and outside service providers.

Only large clinics and practices can justify buying their own scanning equipment. For a small clinic or practice, the high equipment cost with low use rate makes cost per use expensive.

Scan Lab’s direct competitors offer their services to all physicians and accept a wide range of insurance plans. These competitors rarely offer services beyond medical imagine test and radiologist analysis. The medical scanning industry can be profitable if there is not over capacity of the scanning machines in the area. A profitable capacity is to have approximately five MRIs for every 100,000 people. Currently, New Bedford, with a population of 300,000 has 12.

4.3.1 Competition and Buying Patterns

There are nine direct competitors in the area. The large ones are detailed below:

o Massachusetts Imaging Center: This company operates three centers of imaging equipment. This company is large, while they offer competent radiologist analysis, the setting is somewhat factory like where patients become numbers who are shuffled through.

o Bedford Scanning: This is a small facility with one part time radiologist on staff. They only have an MRI and CAT scan, they do not offer any other types of imaging services.

Radiologist Imaging: This facility is similar to Scan Lab but is located on the far side of town, a 25 minute drive away, therefore this facility seems to serve a more regional customer base due to their non-centralized location.

Scan Lab also has indirect competition from clinics and large practices with their own scanning equipment. This group does not serve outside physicians so it is only a threat if they recruit doctors, that use Scan Lab, away from private practice.

Strategy and Implementation Summary

Scan Lab will leverage its competitive edge of having the most advanced equipment with a seasoned, nationally recognized radiologist providing all of the analysis. Scan Lab will employ a marketing strategy that will communicate the message that offers state of the art technology and medical analysis, developing an awareness regarding Scan Lab’s strengths and distinctiveness.

There is not a significant amount of work that needs to occur to market to the insurance companies. This activity is handled by bid submission. Most activities directed at the insurance companies will occur through the sales campaign. Scan Lab will also embark on a sales strategy that has the goal of converting qualified doctors into referring doctors, Scan Lab’s source of patients. The following three sections provides this analysis.

5.1 Competitive Edge

Scan Lab will a nationally recognized expert radiologist in charge of all analysis. Dr. Carolyn Jones has been practicing radiology for 13 years, has published over 14 articles in renowned medical journals and is often asked to be a speaker at national engagements. Recently, she was the keynote speaker for the American Association of Radiologists Annual Conference where she described a new technique of using contrast in medical imaging that yielded a 34% increase in detail. A medical imaging scan is only as good as the analysis of the scan, therefore it is of significant value to offer a service where you have a nationally recognized expert offering the consultation to the referring doctor.

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5.2 Marketing Strategy

Scan Lab will use several methods to communicate that it offers the most advanced technology and the best expert radiology analysis. This message will be communicate through various methods:

o Yellow Pages: While the Yellow Pages are not as targeted as other methods of communication, these advertisements will be necessary as many people turn to the pages when they do not have a specific service provider in mind. The ads are proven to be cost effective.

o Circulars: These will be pamphlets that are sent out to local physicians. The pamphlet will serve to introduce Scan Lab and detail the different services that it offers. It will also provide information on Dr. Carolyn Jones and will include background into her professional accomplishments and activities.

Networking: Dr. Jones recognizes the importance of networking, getting to know the physicians that work in New Bedford. A high percentage of referrals are made based on personal and professional contacts so networking is a very effective method of increasing the number of referrals. Dr. Jones will be active in the numerous organizations and committees that are present within the medical community.

5.3 Sales Strategy

Scan Lab’s sales strategy will be to convert a qualified lead into a referring physician. This will be done through the emphasis of Dr. Jones’ strength and expertise in the field of radiology. The medical scanning laboratories service both patients and doctors.

For patients the scanning must be convenient, pleasant, and accept most insurance plans. For physicians, it must be a high-quality radiologist analysis. The better the analysis, the more accurate information that the radiologists can offer in the consultation to the referring physician.

Scan Lab will be networking with various insurance carriers. The first step is to determine who the key contact at the insurance company is. These contacts will be useful in providing information on what is expected in the submitted bid.

5.3.1 Sales Forecast

The sales forecast adopts a conservative approach to projecting future sales. As a start-up organization, Scan Lab recognizes that sales will be slow initially but by the seventh month sales will be steady and grow as the marketing efforts are developed.

The sales forecast is broken down by the type of service provided and displayed in the following table. The charts give a visual representation of monthly and yearly figures.

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Sales ForecastYear 1 Year 2 Year 3

SalesX-ray $124,292 $130,500 $143,550Ultrasound $73,332 $77,000 $84,700CAT scan $136,721 $143,000 $157,300MRI $87,999 $92,000 $101,200Total Sales $422,344 $442,500 $486,750Direct Cost of Sales Year 1 Year 2 Year 3X-ray $28,587 $30,000 $30,900Ultrasound $16,866 $18,000 $18,540CAT scan $31,446 $33,000 $34,000MRI $20,240 $21,300 $22,000Subtotal Direct Cost of Sales $97,139 $102,300 $105,440




5.4 Milestones

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Scan Lab has chosen several quantifiable milestones that have been developed as goals for the organization to achieve. The following table details the specific milestones, the time frame that has been estimated for completion of the milestone, and the specific employee responsible.

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MilestonesMilestone Start Date End Date Budget Manager Department

Business plan completion 6/1/2003 12/1/2003 $0 CarolynBusiness

DevelopmentSecure lease 12/1/2003 2/28/2004 $0 Carolyn OperationsEquipment purchases 1/1/2004 3/1/2004 $0 Carolyn OperationsFacility open 3/1/2004 3/30/2004 $0 Carolyn OperationsProfitability 10/30/2004 1/31/2005 $0 Carolyn AccountingTotals $0

Web Plan Summary

Scan Lab will have a website which will provide information regarding the services offered and Dr. Jones professional experience.

6.1 Website Marketing Strategy

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Scan Lab will use two simple marketing techniques to alert prospective customers to the site. The first is the prominent display of the Web address on all literature that Scan Lab has. The second is submitting Scan Labs website URL to multiple search engines. This will ensure that if a customer types “New Bedford MRI” into a search engine and they would be brought to www.scanlab.com.

6.2 Development Requirements

The website will be designed and built by a local computer science student.

Management Summary

Scan Lab will be lead by Dr. Carolyn Jones. Dr. Jones received her medical degree from The University of California San Diego, world renowned for their radiology. Dr. Jones moved to the Northeast and practiced her residency at John Hopkins, after which she went to work for a large clinic in Boston.

Dr. Jones has published 14 articles and is frequently asked to present her papers at conferences.

7.1 Personnel Plan

Scan Lab will require the following positions/responsibilities:

o Dr. Jones: In addition to being the resident radiologist, she will also be responsible for business development, and some marketing and sales.

o Technicians: Four people will be responsible for the operation of the machines.

Administration: Two people will be responsible for the clerical duties and bookkeeping.

Personnel PlanYear 1 Year 2 Year 3

Dr. Jones $60,000 $61,800 $63,654Technicians $48,000 $49,440 $50,923Other $19,200 $19,776 $20,269Total People 5 5 5Total Payroll $127,200 $131,016 $134,846


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Financial Plan

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The following sections will outline the financial planning for Scan Lab.

8.1 Important Assumptions

The following table details important Financial Assumptions.

General AssumptionsYear 1 Year 2 Year 3

Plan Month 1 2 3Current Interest Rate 10.00% 10.00% 10.00%Long-term Interest Rate 10.00% 10.00% 10.00%Tax Rate 30.00% 30.00% 30.00%Other 0 0 0




8.2 Break-even Analysis

The Break-even Analysis indicates what is needed in monthly revenue to reach the break-even point.

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Break-even AnalysisMonthly Revenue Break-even $40,582Assumptions:Average Percent Variable Cost 23%Estimated Monthly Fixed Cost $31,248

8.3 Projected Profit and Loss

The following table and charts will indicate Projected Profit and Loss.

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Pro Forma Profit and LossYear 1 Year 2 Year 3

Sales $422,344 $442,500 $486,750Direct Cost of Sales $97,139 $102,300 $105,440Other Costs of Sales $0 $0 $0Total Cost of Sales $97,139 $102,300 $105,440Gross Margin $325,205 $340,200 $381,310Gross Margin % 77.00% 76.88% 78.34%ExpensesPayroll $127,200 $131,016 $134,846Sales and Marketing and Other Expenses $6,000 $0 $0Depreciation $172,300 $0 $0Rent $24,000 $0 $0Utilities $6,000 $0 $0Insurance $18,000 $0 $0Payroll Taxes $19,080 $0 $0Other $2,400 $0 $0Total Operating Expenses $374,980 $131,016 $134,846Profit Before Interest and Taxes ($49,775) $209,184 $246,464EBITDA $122,525 $209,184 $246,464Interest Expense $79,500 $68,000 $56,000


Taxes Incurred $0 $42,355 $57,139Net Profit ($129,275) $98,829 $133,325Net Profit/Sales -30.61% 22.33% 27.39%

8.4 Projected Cash Flow

The following table and chart will indicate Projected Cash Flow.

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Pro Forma Cash FlowYear 1 Year 2 Year 3

Cash ReceivedCash from OperationsCash Sales $105,586 $110,625 $121,688Cash from Receivables $240,226 $328,223 $357,044Subtotal Cash from Operations $345,812 $438,848 $478,732Additional Cash ReceivedSales Tax, VAT, HST/GST Received $0 $0 $0New Current Borrowing $0 $0 $0New Other Liabilities (interest-free) $0 $0 $0New Long-term Liabilities $0 $0 $0Sales of Other Current Assets $0 $0 $0Sales of Long-term Assets $0 $0 $0New Investment Received $0 $0 $0


Subtotal Cash Received $345,812 $438,848 $478,732Expenditures Year 1 Year 2 Year 3Expenditures from OperationsCash Spending $127,200 $131,016 $134,846Bill Payments $227,987 $219,308 $218,092Subtotal Spent on Operations $355,187 $350,324 $352,938Additional Cash SpentSales Tax, VAT, HST/GST Paid Out $0 $0 $0Principal Repayment of Current Borrowing $0 $0 $0Other Liabilities Principal Repayment $0 $0 $0Long-term Liabilities Principal Repayment $120,000 $120,000 $120,000Purchase Other Current Assets $0 $0 $0Purchase Long-term Assets $0 $0 $0Dividends $0 $0 $0Subtotal Cash Spent $475,187 $470,324 $472,938Net Cash Flow ($129,375) ($31,477) $5,793Cash Balance $188,525 $157,048 $162,841

8.5 Projected Balance Sheet

The following table will indicate the Projected Balance Sheet.

Pro Forma Balance SheetYear 1 Year 2 Year 3

AssetsCurrent AssetsCash $188,525 $157,048 $162,841Accounts Receivable $76,532 $80,184 $88,203Other Current Assets $0 $0 $0Total Current Assets $265,057 $237,232 $251,044Long-term AssetsLong-term Assets $861,500 $861,500 $861,500Accumulated Depreciation $172,300 $172,300 $172,300Total Long-term Assets $689,200 $689,200 $689,200Total Assets $954,257 $926,433 $940,244Liabilities and Capital Year 1 Year 2 Year 3Current LiabilitiesAccounts Payable $24,132 $17,479 $17,965Current Borrowing $0 $0 $0Other Current Liabilities $0 $0 $0Subtotal Current Liabilities $24,132 $17,479 $17,965Long-term Liabilities $740,000 $620,000 $500,000Total Liabilities $764,132 $637,479 $517,965Paid-in Capital $330,000 $330,000 $330,000Retained Earnings ($10,600) ($139,875) ($41,046)Earnings ($129,275) $98,829 $133,325Total Capital $190,125 $288,954 $422,279Total Liabilities and Capital $954,257 $926,433 $940,244Net Worth $190,125 $288,954 $422,279





8.6 Business Ratios

The following table details Business Ratios as they relate to Scan Lab, as well as the Diagnostic Imaging Center industry, NAICS code 612512, that it participates in.

Ratio AnalysisYear 1 Year 2 Year 3 Industry Profile

Sales Growth 0.00% 4.77% 10.00% 8.83%Percent of Total AssetsAccounts Receivable 8.02% 8.66% 9.38% 29.41%Other Current Assets 0.00% 0.00% 0.00% 48.00%Total Current Assets 27.78% 25.61% 26.70% 80.30%Long-term Assets 72.22% 74.39% 73.30% 19.70%Total Assets 100.00% 100.00% 100.00% 100.00%Current Liabilities 2.53% 1.89% 1.91% 30.82%Long-term Liabilities 77.55% 66.92% 53.18% 21.77%Total Liabilities 80.08% 68.81% 55.09% 52.59%Net Worth 19.92% 31.19% 44.91% 47.41%Percent of SalesSales 100.00% 100.00% 100.00% 100.00%Gross Margin 77.00% 76.88% 78.34% 100.00%Selling, General & Administrative Expenses

102.84% 0.00% 0.00% 66.55%

Advertising Expenses 0.00% 0.00% 0.00% 0.85%Profit Before Interest and Taxes -11.79% 47.27% 50.63% 5.72%Main RatiosCurrent 10.98 13.57 13.97 1.77Quick 10.98 13.57 13.97 1.49Total Debt to Total Assets 80.08% 68.81% 55.09% 54.16%Pre-tax Return on Net Worth -67.99% 48.86% 45.10% 6.71%Pre-tax Return on Assets -13.55% 15.24% 20.26% 14.64%Additional Ratios Year 1 Year 2 Year 3Net Profit Margin -30.61% 22.33% 27.39% n.aReturn on Equity -67.99% 34.20% 31.57% n.aActivity RatiosAccounts Receivable Turnover 4.14 4.14 4.14 n.aCollection Days 56 86 84 n.aAccounts Payable Turnover 10.45 12.17 12.17 n.aPayment Days 27 36 30 n.aTotal Asset Turnover 0.44 0.48 0.52 n.aDebt RatiosDebt to Net Worth 4.02 2.21 1.23 n.aCurrent Liab. to Liab. 0.03 0.03 0.03 n.a


Liquidity RatiosNet Working Capital $240,925 $219,754 $233,079 n.aInterest Coverage -0.63 3.08 4.40 n.aAdditional RatiosAssets to Sales 2.26 2.09 1.93 n.aCurrent Debt/Total Assets 3% 2% 2% n.aAcid Test 7.81 8.99 9.06 n.aSales/Net Worth 2.22 1.53 1.15 n.aDividend Payout 0.00 0.00 0.00 n.a

Appendix

SALES FORECAST

MONTH MONTH MONTH MONTH MONTH MONTH MONTH MONTH MONTH MONTH MONTH1 2 3 4 5 6 7 8 9 10 11

Sales

X-ray 0% $0 $0$5,500

$8,565

$10,005

$12,454

$13,121

$14,005

$14,989

$15,114

$15,265

Ultrasound

0% $0 $0$3,245

$5,053

$5,903

$7,348

$7,741

$8,263

$8,844

$8,917

$9,006

CAT scan 0% $0 $0$6,050

$9,422

$11,006

$13,699

$14,433

$15,406

$16,488

$16,625

$16,792

MRI 0% $0 $0$3,894

$6,064

$7,084

$8,817

$9,290

$9,916

$10,612

$10,701

$10,808

TOTALSALES

$0 so $18,689

$29,104

$33,997

$42,319

$44,585

$47,589

$50,933

$51,357

$51,870

Direct Cost of Month Month Month Month Month Month Month Month Month Month MonthSales 1 2 3 4 5 6 7 8 9 10 11

X-ray $0 $0$1,265

$1,970

$2,301

$2,864

$3,018

$3,221

$3,447

$3,476

$3,511

Ultrasound

$0 $0 $746$1,162

$1,358

$1,690

$1,781

$1,900

$2,034

$2,051

$2,071

CAT scan $0 $0$1,392

$2,167

$2,531

$3,151

$3,320

$3,543

$3,792

$3,824

$3,862

MRI $0 $0 $896$1,395

$1,629

$2,028

$2,137

$2,281

$2,441

$2,461

$2,486

Subtotal Direct Cost of Sales

$0 $0 $4,298

$6,694

$7,819

$9,733

$10,255

$10,945

$11,715

$11,812

$11,930

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